Options for low volatility stock | Raymond Chan | Finance News Network

Options for low volatility stock

by Raymond Chan

ASCIANO, AIO.ASX
Current Price: $1.67

AIO has weaken off from the recent high of just under $1.80 reached in early April. With the culmination of the market pulling back from the almost 5000 points since mid April and the threat of potential industrial actions at its container ports division, AIO is currently sitting at $1.67.

With its FY12 EBITDA at 8.1x, it is trading below its global port and rail peers (which are at 11.7x and 8.8x respectively). It is now sitting at an attractive price level.

There is a chance for AIO to trade back up to the $1.80 level.

To take advantage of this move and with relatively low volatility on the stock, investors can look at selling a put spread of the stock to earn income.

Suggested options strategy:
Sell Jun $1.70 put and buy Jun $1.60 put for a net 4c credit.

Maximum loss on each contract of put spread is 10c.

For an investor who is prepared for a $5k maximum loss, he/she is able to sell 50 contracts for an income of $2k (before costs).

Possible scenarios:
1 should AIO finishes above $1.70 end June, then $2k income is earned
2 should AIO finished below $1.60 $5k is lost
3 should AIO finished between $1.60 and $1.70, spread can be closed with a loss under $5k

Alternatively, the put spread can be exited separately with the sold put profit taken first.

Happy Trading!

Wai-Yee

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